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Sarepta Therapeutics got some very good news this morning when the Food & Drug Administration reversed itself and agreed to consider Sarepta's experimental drug for Duchenne muscular dystrophy for accelerated approval.

Sareptasrpt -0.9636767976278725%Sarepta Therapeutics Inc.U.S.: NasdaqUSD13.36
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(SRPT) shares are surging, up $11.34, or 46%, to $35.74, in response to the favorable FDA news. The stock still has a lot of upside potential because the Sarepta drug, eteplirsen, could become the basis for a family of DMD drugs with several billion dollars of annual revenues.

That prospect, of course, hinges on FDA approval. However, odds of approval have gone up considerably with the FDA news today. Sarepta now is valued at about $1.4 billion. Companies with lucrative drugs for rare diseases like Alexion Pharmaceuticals can trade for more than 10 times annual revenues.

Sarepta said this morning that it plans to submit a new drug application (NDA) for eteplirsen by year-end. That could lead to potential approval for the drug by the middle of next year.

DMD is a fatal muscle-wasting disease affecting boys that typically manifests itself by age seven or eight. Boys tend to be in wheelchairs by their early teens and dead by their early 20s. About 15,000 boys in the U.S. now have the disease. It occurs in 1 in 3,500 male births, making DMD the most common fatal genetic disease. Eteplirsen aims to stimulate cellular machinery to produce dystrophin, the protein critical to muscle health that is lacking in boys with DMD. Currently, there are no effective treatments for DMD.

Barron's has chronicled the Sarepta story in several articles in recent years, including one published over this past weekend (see Feature, "A High-Profile Decision for the FDA," April 21). In our latest article, we argued that Wall Street was underestimating the odds of accelerated approval due in part to growing pressure on the FDA from DMD patients, their parents, medical experts, and members of Congress.

The news today was largely positive with Sarepta CEO Chris Garabedian saying on a conference call this morning that he was "very pleased" with the updated FDA guidance "that provides all the information that we need to move this program forward." In a best-case scenario, eteplirsen could be approved by the middle of 2015, he said. That compares with a potential approval date of 2017 or later if the FDA had required a full confirmatory phase III study before rendering its verdict. The FDA now is willing to consider eteplirsen for approval based on a small phase II study involving 12 boys.

Congress has allowed and indeed encouraged the FDA to grant accelerated approval for drugs addressing serious diseases without treatment options based on limited data from clinical trials with final approval hinging on favorable phase III trial results.

The eteplirsen phase II trial has generated considerable excitement and hope within the DMD community because 10 of the 12 boys have shown stabilization in their ability to walk over more than two years. Two boys quickly lost their ability to walk after the trial began. The boys who now are walking are at an age when many boys with DMD are in wheelchairs. Importantly, eteplirsen has been remarkably safe with no adverse side effects.

Back in November, Sarepta surprised Wall Street by saying that the FDA was unwilling to consider the drug for accelerated approval, and that news sent the stock down to as low as $12 from the low $30s.

Other bullish developments today for Sarepta include the FDA's willingness to allow the company to conduct an open-label phase III trial involving 60 to 80 boys without a placebo control. The performance of the boys on a walking test will be measured against prior studies of untreated boys to measure the drug's effectiveness. The open-label trial is a win for Sarepta, because it can begin more quickly than a placebo-controlled trial and the trial will offer a stronger verdict on the drug's effectiveness with all the boys taking the drug. The larger a trial, the more statistically significant are its results.

Another piece of bullish news is that the FDA plans to convene an independent advisory panel before considering the drug for approval. This is important because there are lingering concerns within the FDA about the drug's effectiveness and an independent panel could provide important support for the drug. Moreover, the FDA will allow Sarepta to move forward with clinical trials for other DMD drugs caused by different mutations on the dystrophin gene. Eteplirsen addresses a mutation at a point called exon 51 that affects about 13% of boys with DMD. Ultimately, Sarepta could address 80% or more of the DMD-causing mutations.

In fact, the FDA guidance is in line with the actions sought by a DMD advocacy group (The Race to Say Yes) that were outlined recently in a letter to FDA commissioner Margaret Hamburg.

Sarepta is expected to submit by year-end additional data from its ongoing phase II trial related to the performance of the boys on a six-minute walk test. The company expects to have data at the 144th and perhaps the 168th week of the trial available, meaning the FDA may have three years worth of walk-test data before deciding on accelerated approval.

Garabedian was asked on the call what he hoped the fresh data would show: "We're hoping to keep them on their feet. The fact that these 10 boys have stayed on their feet is remarkable," he said. Garabedian cautioned that etepliren isn't a miracle drug. "We're not creating healthy boys." The drug's aim is to produce a truncated but functional form of the protein dystrophin that will turn DMD into a milder form of the disease, called Becker's muscular dystrophy.

The mother of one of the boys in the trial, Max Leclaire, posted a video of the 12-year-old on the baseball diamond over the weekend in which Max is seen running to first base. He's slower than a healthy boy but his ability to run is notable at an age when his brother, who also has DMD, was in a wheelchair.

Given the sales potential for eteplirsen and a family of DMD drugs, why isn't Sarepta stock even higher? Sarepta said the FDA stated that it still has "significant concerns" about the ability to draw "valid conclusions" from the walking-test data and the agency "remains skeptical about the persuasiveness" of the dystrophin data. To address that, Sarepta plans to do another muscle biopsy of the boys in the phase II trial. Sarepta bears likely will latch onto those FDA statements as signs of ongoing doubts within the agency about the drug.

While the FDA clearly has lingering concerns, it will be tough for the agency to deny accelerated approval for eteplirsen if walk-test data from the phase II study remain positive and the drug shows continued production of dystrophin. If the data remain favorable, the pressure on the FDA to grant accelerated approval will be intense in what is probably the highest-profile drug approval decision in many years.